FG Okays Payment Of N2.7trn Contract Liabilities

The federal government has approved has approved the process to validate and pay N2.7 trillion being inherited contractor and employee liabilities dating back two decades.

This is in line with its resolve to settle a number of inherited and long outstanding obligations to contractors, state governments and employees.

This will be followed by a request to the National Assembly to approve the programme ahead of implementation.

This was disclosed by the Minister of Finance, Kemi Adeosun, yesterday after the Federal Executive Council (FEC) meeting presided over by Acting President Yemi Osinbajo at the presidential villa, Abuja.

According to her, obligations accumulated over the last two decades is to be paid through bond and promissory note issuance to resolve long outstanding dues and stimulate economic activity.

In March 2017, the Economic Management Team, under the leadership of Osinbajo, had mandated the minister of Finance to chair a committee that will establish a process to confirm the validity of inherited federal government obligations and propose a mechanism to resolve them.

Yesterday, Adeosun explained that these obligations largely consist of dues owed to state governments, oil marketers, power generation and distribution companies, suppliers and contractors by federal parastatals and agencies, payments due under the Export Expansion Grant (EEG), outstanding judgement balances as well as pension and other benefits to federal government employees.

The minister pointed out that, while some of the obligations date as far back as 1994, the resolution of this will significantly enhance liquidity in critical sectors of the economy.

She further explained that following an exhaustive process of reconciliation, the committee has been able to provisionally confirm a discounted total of N2.7 trillion of obligations, consisting of N740 billion of outstanding pensions and promotional salary arrears (not discounted) and N1.93 trillion (discounted) of other obligations, including dues to federal government contractors and suppliers.

She said these numbers are aligned with existing federal government estimates and in some cases are lower than previously estimated.

According to her, the supplier and contractor obligations will be resolved through a strict process of final validation, following which those confirmed will be settled through the issuance of liquid promissory notes (ten-year tenure), phased over a three-year period to minimise impact on liquidity and with preference given to those willing to offer the largest discounts.

She further noted that obligations owed individuals (for example pensions and employee benefits) will be resolved through the issuance of specific bond instruments, and again phased over the next 3 years.

She added that these obligations will then be incorporated into the Medium- Term Expenditure Framework by the Ministry of Budget and National Planning.

Adeosun said, “We cannot get our economy moving at the pace we need to if we do not address the legacy issues we have inherited, which act as a significant drag on economic activity. The government must be a driver of growth, and enable private sector activity.

“It should not be the most significant obligation to many value creating businesses. At the same time, we have an obligation to our federal government employees to address these long-outstanding pension and employment benefit issues.

“We are doing this systematically, and we want to do so once and for all. We are enhancing the government’s control and processes to ensure we do find ourselves in this situation again.

“Over the last two decades the federal government has built up over N2.7 trillion of obligations which were not cash backed, and remain outstanding to this day. We have developed a solution that will simultaneously resolve these issues, and deliver a boost to economic performance’.

The minister continued: “Our solution will remove the drag on economic performance these obligations cause, improve liquidity in key sectors, especially the power sector where we will resolve FG dues to the distribution and generation companies, and boost investor confidence.

“It will also help to improve non-performing loan ratios in the banking sector where an unacceptable number of NPL’s are linked to government contracts.

“The total obligations identified are N3.4 trillion. However, a process of discounting the contractor obligations means we have been able to reduce the liability to approximately N2.7 trillion, of which N740 billion are pension and other benefits, and N1.93 trillion are other obligations, largely contractors, suppliers and verified obligations to state governments”.